Any Answers Answered: Company car provisions
Company cars and car allowances are perennially popular topics on AccountingWEB, and in their latest video TAXtv hosts Giles Mooney and Tim Good take a spin through two questions on the Any Answers board.
To watch the full video of Good and Mooney answering readers’ questions click here or scroll down to the bottom of the page.
Car for new employee?
AccountingWEB member thewireone logged in with the following scenario: “We have identified an ideal employee for our small business who will have management responsibility. Only trouble is that he lives 75 miles away.”
According to thewireone, the employee would like to have a company car due to the commute; there will be no real business mileage, just the drive to work. However, the costs for the car, fuel benefit etc. are adding up to a figure that isn’t popular with the employer, so they are asking how they can structure this to make it a cheaper option.
The answers that came in from AccountingWEB members were pretty unanimous: you shouldn’t be providing the individual with a company car in this sort of way.
Duggimon stated: “I wouldn't advise anyone to buy company cars for employees who will have near 100% personal use”, while Mr_awol advised the member to relocate the business closer to his home.
Tim Good was in agreement, stating that it’s a good example of the tax tail wagging the commercial dog.
“The employee should be persuaded to provided their own means of transport, and if necessary offer a higher salary,” said Good. “There’s no tax benefit, but there’s certainly a tax disadvantage in the proposed arrangement”.
Company car v car allowance
Andrew119 got in touch about the company car versus car allowance debate. He asked: “would be interested if people have an opinion of [a company car being] better or worse than an allowance”.
And for the car allowance, “are you then entitled to claim the 45p business mileage for all business-related journeys - is that 45p subject to tax or do you claim that as an expense at the end of the month?”
Andrew119 acknowledged that it was a fairly basic question, but wanted clarification as “everyone seems to have a different opinion!”
MJShone responded that the reason everyone has a different opinion is that “it depends what car you want”, while Paul D Utherone confirmed that if you are running your own car then you claim 45p per mile on business miles.
Over on TaxTV, the question took Giles Mooney and Tim Good into a discussion about the new salary sacrifice rules that will have a huge impact on exactly this scenario.
According to Good, these are very important changes for certain benefits in kind. The new salary sacrifice rules, or more precisely the optional remuneration arrangement (ORA) rules, were included in the Finance Act 2017 and took effect from April this year.
In light of the new ORA rules Good urged businesses to review their current benefits in kind offerings.
“The provision of cars is a good example of a benefit that could be caught,” said Good.
To watch the full video, including an example Tim Good uses on the lecture circuit about how a company’s car allowance scheme could fall foul of the new salary sacrifice rules, click play in the box below.
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